Did anyone notice today how little coverage and how few developments came out of the EuroZone while the market was rallying today? We can't have anything upset the apple cart today as the Government Motors (GM) issue makes it's grand entrance back into the market. And it wasn't all that grand was it? As I showed a couple of times today, a fast 3C chart (being we had no recent historical data to judge by) showed distribution and pretty bad distribution. As it turns out 95% of the entire GM float was turned over today, so some early retail buyers ended the day with a $1 loss as many shares changed hands from institutional traders to retail traders. The fact that 3C didn't show accumulation, the fact that nearly the entire float was turned over and it closed down doesn't sound like institutional money held onto their allotment.
So as was the case two or three weeks ago, is the E.U. once again in the clear? If you've been reading what I've been writing at night the last week I'd think you would answer, "it can't be over" and there is nothing to suggest it is over. Even if Ireland capitulates to the will of the E.U., it's not over-it's really just starting up again. Portugal will likely be next or perhaps Greece will have some problems as they get a month long time-out in the corner for bad behavior. The fractures to the very Union itself have become evident by not one, not two, but the entirety of the E.U. as they rebuke Greece for their poor book keeping at best and outright lies at worst, or at least at realism. The political scene is quickly getting hotter as well with a lot of Anger flowing toward Germany for the suggestion that bond holders should accept some of the risk that comes with these bailouts, even if they did later clarify they meant in the future.
The problem for many traders is we get too wrapped up in the day to day movements of the market to stand back and look at the important, objective technical and fundamental information.
The charts I posted last night and the night before showing accumulation in bearish ETFs didn't change because of today's rally. However, with a few more days of bounce, attitudes can change very quickly. The more you have risked, the quicker your attitude will usually change. Long term successful trading depends on objectivity, risk management can help you with objectivity as you won't be in the kind of hole that make a trade an emotional affair rather then a business decision.
While the ramp in the futures this morning are not so much a surprise as we have had evidence of a bounce since Tuesday night, what is a surprise is some of the very lame excuses GS offered as to the ramp. We know for sure it wasn't POMO as the market went nowhere after 11 a.m. and had a bit of a sell-off into the afternoon. So far this week has been a real let down to the front running POMO bulls. I suggested this may be the case as every trader was indoctrinated into a Pavlov's type situation with the former POMO regime.
I believe we've been seeing fractional accumulation for two days and it probably more has to do with the release of GM back into the market. I'm pretty sure the chances of Chinese monetary tightening policy did not vanish overnight and no settlement regarding Ireland has been reached. The truth is markets bounce, some seem a little more orchestrated then others, for instance, this one seemed a little more orchestrated then others.
So that brings me back to the reality of what did happen today that is noteworthy? This is an unfiltered hodge podge of notes I took today/tonight.
Municipal bonds, bonds that keep cities, counties and states running, plus those of pension funds are finally coming under the pressure I wrote about several months ago. Strangely, almost all of them count on an 8% return per year to try to meet their commitments as most have severely underfunded liabilities. This 8% a year target for these kinds of funds is as I wrote back then, is simply unrealistic and the situation that we may have taken our eyes off for a few months never went away, it just didn't start showing up until recently again in the media.
Yesterday Philadelphia, San Fransisco and San Fransisco county all saw their municipal bonds downgraded by Moody's; basically 3 in one day; so we know this is just the start of another problem for the US economy and pensioners in particular.
We saw China's inflation heading quite a bit north of their target, that didn't clear up today, the chances of China tightening monetary policy didn't change and price controls are already going into effect. Last night I wrote a bit about emerging markets and an inverse ETF play on them. One of the things I mentioned was rising housing prices in emerging markets; just today in a little covered story, the IMF warned of housing bubble risks in Hong Kong.
Bloomberg reports that South Korea is set to slow the pace of hot money inflows by taxing bonds bought by foreign investors.The legislation will be a 14% tax on interest and a 20% tax on capital gains when the bonds are sold.
Citing a few more lightly touched upon stories today, Moscow is selling government assets to try to help reduce their budget deficit-this is a potential problem we've heard very little about. E.U. Contagion is creeping in as Portugal saw its borrowing costs rise at their auction by 47% vs. their last auction!
Walmart's "Pseudo Inflation Index" is foreshadowing a move up through 4%, which is twice the Fed's comfort zone. On that front Sears came in with an October net loss of $218 million, up from $127 million blamed on weaker sales. I also expect Lowes and Home Depot to be probable short candidates just because of what's going on with real estate and the nature of their business. I also mentioned last night that cheap money was not staying in the country but going overseas, Toshiba is shutting down its chip plant and packing it off to some overseas location.
Back in the USA, AFTER THE FAILED STRESS TEST IN Europe and now the dire need of capital for their banks (did I mention the grass-rots bank run that is set for European Banks on December 7th?), the Fed has decided to embark on another round of American bank stress tests of the largest 19 financial institutions. Time to make double-dog sure, but I think this is just a front to give the Fed and Treasury ammunition to further control the banks and play with their reserve standards.
In mortgage news, the 30 year Freddie Mac mortgage is up from 4.17%-4.39%. Last night I wrote in some detail about the housing problems we are facing and much of it was from a first person, buyer's perspective. This was not good news, but the rally was set in motion I believe two days ago, the environment was just right as the Euro was on a bounce. All of that accumulation we saw that led nowhere, seemed to be accumulation just the same.
Today the VIX took a surprising plunge...
As 3C has been signaling in various timeframes for the better part of a week, silver once again outperformed gold today.
Here's your daily SPY/3C chart, not much changed despite today's bounce.
In looking for trades, I'm at a bit of a crossroads. I believe there's enough juice in the market to rally up another day, depending on what happens tomorrow, maybe more. However, the 1/5 min 3C charts showed pretty significant distribution today. They did not show the kind of accumulation or even confirmation that I expected. So many of the good looking long trades showed these negative divergences which makes me hesitant to list them. At the same time, it didn't get so out of control that I would say we are done with the bounce and "here are shorts to look at". I did find a few that look decent though.
RRC energy is a long that may be worth a shot, the red trendline is the area, at which slightly below I'd place a stop. The green line is the intraday limit order to buy long. MACD and volume plus 3C look good on the trade.
AMR is another trade on the long side that seems to have good R:R ratio as it has pulled back to the 22 day ma. A close below that m.a. and I'd stop out, otherwise volume is up a bit on today's gain and the screen is still showing a long trade here.
UTI is another long possible follow through trade as it closed well and on volume. The stop is difficult here, I'd enter intrday on a new high ad probably set a % loss stop.
One last chart. I mentioned the 2 days of spot accumulation and the Euro's sweet spot for a bounce. Also the S&P was at a decent support zone that made sense for a bounce to occur in the area.
What will be important to watch tomorrow is whether this consolidation in the euro breaks and heads lower, in which case the bounce should be done. Right now there's a short term downtrend in the pair, but overnight action can change quickly. The second most important thing to watch is whether we see some kind of positive divergence somewhere in the averages or whether the deterioration we say in the afternoon keeps up. If the latter is the case, then the short trades will be worth a look and I'll list more.
Tomorrow is also options expiration. I believe the largest open interest is on $120 SPY calls, so in normal fashion, I'd expect the $120 level not to be breached and those calls to expire worthless. As a general rule of thumb, that is what happens as the pros tend to sell options and retail tends to buy them looking for a big payday on the cheap and fast.
I'll be with you all day tomorrow. If anyone is in the winning trades like NYNY, lease contact me if you do not have an exit strategy. 50% in two days is a gift you do not want to give up.
